housing market

HARP and Ideas For A Mortgage Principal Program

I like to clarify some misconceptions about the revised home affordable refinance program talked about in my prior post. Although the operational details are not scheduled to be released until November 15^th. It’s clear that this program does not reduce the principal loan balance.

With that cleared up, it still my opinion that when the cost of administration is considered, I am very dubious that this will be a cost-effective program. Sure, it will help out some homeowners and the fact that it is a much more sensible program by having one of the qualification criteria as not being behind on your mortgage payments in the prior six months and only one late payment in the past year, for once,  directs benefits to the responsible homeowners.

So, a more sensible program to be sure… but, I doubt its effectiveness! To date the government’s programs on housing have reduced the debt of just 0.1% of the underwater borrowers. And in a number of these past programs it said default rates after one year have been as high as 65%!

Mortgage Principal Reduction Program:

A number of economists believe that principal reduction of mortgages is necessary to stabilize the housing market. But, for such mortgage principal reduction to be equitable not only to the underwater homeowners but to all homeowners as well as the US taxpayer such a program should not be just a typical government bailout.

It’s my opinion that if a mortgage principal reduction program is to be initiated, two main criteria must be part of the bedrock qualifications. Number one, just like in the revised HAR P program above, only homeowners who are current on their mortgage payment, at least for the last six months should be eligible. Number two, and perhaps the most important criteria, would be that in exchange for the principal reduction the lender is granted a share of any future appreciation in the property up to the amount of the principal reduction.

I’ve said it before, and I’ll say it again, if the government would just get out of the way and allow the normal foreclosure processes to proceed as rapidly as possible to get through liquidation, reallocation and recovery, the sooner this housing market will be on the path to recovery!